On the ASX and globally, shares in the software industry are my favourite stomping ground. In my opinion, it’s the sweet spot of sticky, high margin, compounders.
While you might think that all of our best technologies are overseas, I would urge you to think again. Sure, the USA has Microsoft Corp (NASDAQ: MSFT) and Alphabet Inc (NASDAQ: GOOGL). Tech titans.
However, right here in Australia, on the ASX, there are 120 software shares/companies, and many of them are worth a spot on your watchlist. Yes, some of them are small (the average size is $94 million). But many of the smaller tech companies also have the most upside in our market.
Below, I’ve listed 10 ASX software shares between $350 million and $1 billion in market capitalisation. If you haven’t already, add them to your watchlist.
Objective Corporation Limited (ASX: OCL)
Up from $3.50 last year to over $10 per share now, Objective Corp is a New South Wales-based company founded in 1987.
Objective Corp is a software company that helps corporates or Government clients better manage their data, security, information and workflows. If your office wants to “go paperless”, they should call Objective Corp.
Objective Corp is profitable, with cash flow growing fast over the past four years.
Data#3 Ltd (ASX: DTL)
Data#3 is a Queensland-based software company, helping enterprises with most facets of their technology stack, implementations, IT needs and security. It’s an IT services business which was founded in 1977 and listed on the ASX 20 years later, in 1997.
Data#3 has grown its sales consistently over the past 10 years, as more businesses embrace the world’s shift to technology and automated solutions. And while its fully franked dividends have been lumpy from one year to the next, Data#3 has paid at least some level of dividends every year for the past decade. That’s impressive.
Integrated Research Ltd (ASX: IRI)
Integrated Research or IRI is one of my favourite technology companies that I never bought. I’ve watched it since 2012/2013, when the shares traded around $0.50 — they’re now $4.36 and have paid back around $0.46 in fully franked dividends.
Like most IT solutions companies, IRI ‘manages complexity’. Its software is very niche in focus and contracts can be lumpy. Yet its products are very sticky.
Founded in 1988 by Steve Killelea, IRI’s flagship product is Prognosis, which helps IT teams manage security and network bandwidth for communications, payments and information flow. The easiest way to think of Prognosis is as a monitoring tool that will optimise a network on-the-fly, for example when your globally-connected team is communicating through a single Skype call.
Infomedia Ltd (ASX: IFM)
Infomedia is a software business helping mechanics and vehicle dealers catalogue and manage their car parts, products and databases readily. This software is embedded into the lives of customers and helps mechanics and shops provide accurate pricing on repairs and aftermarket accessories.
Infomedia is one of those technology companies which just seems to chug along, slowly compounding its top line (sales) and cash flow year after year. Like Data#3 and IRI, Infomedia tends to pay a modest dividend each and every year.
ELMO Softare Ltd (ASX: ELO)
It might sound like your child’s favourite Sesame Street character but ELMO is a serious software business. ELMO’s software makes sure employees are paid on time, human resources can manage their workplaces efficiently and more. Best of all, ELMO software helps automates workflows by providing its tools in a convenient cloud-based environment.
Since listing on the ASX in 2017 ELMO has settled into public life well, growing sales and maintaining positive cash flow. For me, it’s one to watch.
Hansen Technologies Ltd (ASX: HSN)
The family-run Hansen Technologies is an enterprise software business responsible for developing and managing some of the most important customer data and billing software in the country. Hansen is the company behind the software used by utility businesses and telecommunications companies like Optus, owned by SingTel.
Given the sticky nature of its products, the company has steadily grown its sales over many years, with the acquisition of Canada’s Sigma Systems in 2019 expected to help expand the company’s reach and scale.
Splitit Ltd (ASX: SPT)
Splitit offers its customers the ability to ‘split’ the purchase price of basic products, such as a TV, clothing, or appliance. It’s arguably more of short-term financing business. Nonetheless, shoppers can split their purchases into up to 36 interest-free monthly payments using their existing Visa (NYSE: V) or Mastercard (NYSE: MA) account.
We’ve reported on Splitit shares quite a few times — alongside most Buy Now, Pay Later (BNPL) companies such as Afterpay (ASX: APT), Sezzle Ltd (ASX: SZL), Quickfee Ltd (ASX: QFE) and FlexGroup Ltd’s (ASX: FXL) Humm. While Splitit is listed on the ASX, it operates globally by attracting merchants/retailers to join its network and offer their customers payment support.
I think the consumer BNPL industry is too hot to touch right now but Splitit is one for the watchlist.
Life360 Inc (ASX: 360)
Life360 was founded in 2007 and is based in San Francisco, California. Life360 is a software company that helps families keep in touch, by keeping people in contact with one another by knowing where they are and what they are doing. The company’s products are sold on monthly plans to consumers, with a free and premium package available.
As of its most recent quarterly cash flow statement, Life360 had positive operating cash flow of $US0.7 million. On an annualised basis, 360Life says it has 25.2 million users, up 9% year over year, and achieved an underlying monthly revenue run rate of $US77.9 million. That compares to its current market capitalization of over $520 million.
Whispir Ltd (ASX: WSP)
Founded in 2001, Whispir is a platform which companies can use to enhance their development resources and communications technologies. For example, ever wondered how and why companies will send you emails, text messages and give you a call at a time that’s convenient? They do this because it’s effective and platforms like Whispir have made it easy to automate complex communications systems.
A Rich Life’s Claude Walker recently wrote, “Businesses, big and small are looking to be able to text, call, send push notifications, and email… More than that, they want to have useful ways of automating list creation.”
Whispir has experienced strong growth as more businesses move online and embrace sophisticated omnichannel digital marketing solutions. In its most recent quarter, Whispir’s total cash receipts from customers was up 27% to $11.3 million. Annualised revenue growth was up 35% to $42.2 million.
Nitro Software Ltd (ASX: NTO)
Nitro Software is the smallest company on my list by market cap but it’s not far behind the others.
Founded in Melbourne, Nitro Software is the Australian company behind Nitro Productivity, a suite of products for easy handling and dealing with all types of digital documentation (PDFs, Word docs, spreadsheets, etc.). Nitro Sign is another of its products, allowing customers to create eSignatures on documents. Nitro was the first alternative to Adobe Inc’s (NASDAQ: ADBE) Acrobat PDF product.
Having only recently listed on the ASX, there’s not much of a public market’s financial history to go on, but don’t let that put you off. In its most recent quarter, Nitro achieved $10 million of cash receipts, up 10%, with 47% of its first-half revenue generation from subscriptions. Thanks to its ASX listing in late 2019 the company had around $44 million of cash and no debt.
Buy, Hold or Sell
There’s no denying that software is eating the world. Actually, it’s already eaten it.
Despite the immense wealth creation in this sector, there are so many compelling opportunities on the horizon. That’s why it still surprises me how many local investors, who invest long term, haven’t gotten an appropriate amount of exposure to this important and ubiquitous sector.
I reserve all of our premium stock research for our paying members at Rask Invest, so I won’t offer any buy, hold or sell suggestions. However, what I will say is that if you haven’t yet put these software companies on your watchlist for 2020 and beyond — you should.
There are a few names here that I’ll be watching like a hawk in the current ASX reporting season.
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